BMRI: Government Liquidity Support Will Drive Banking Resilience And Lending Capacity

Key Takeaways

• Bank Mandiri's value chain strategy and digital platform investments are key drivers of loan growth and revenue enhancement.
  
• Strategic focus on low-cost funding and asset quality is set to boost net margins and long-term profitability.
  
• Tight liquidity, high funding costs, and macroeconomic challenges could pressure Bank Mandiri's profitability and revenue growth despite strong loan growth.

Catalysts

Provides various banking products and services to individuals and businesses in Indonesia, Singapore, Hong Kong, Timor Leste, Shanghai, Malaysia, the United Kingdom, and the Cayman Islands.

• Bank Mandiri's focus on its value chain ecosystem strategy is a key growth driver. By leveraging strong corporate relationships, the bank plans to enhance its reach into suppliers, employees, and distribution networks, which could lead to increased loan growth and higher interest income. This is likely to positively impact revenue and earnings.
  
• The investment in digital banking platforms like Livin' and Kopra is expected to result in significant increases in transaction volume, which should contribute to growth in digital fee income. This diversification is likely to impact non-interest income, contributing to overall revenue and margins.
  
• The bank's deliberate shift towards growing low-cost funding sources, such as saving deposits and SME demand deposits, aims to lower funding costs. This strategic focus on optimizing the funding structure is expected to improve net interest margins and support earnings growth.
  
• Strong asset quality management and disciplined risk practices are expected to maintain low credit costs and robust loan portfolio health. The improved asset quality and reduced non-performing loan ratios will likely have a positive effect on net margins and sustainable long-term profitability.
  
• The integration of ESG initiatives and digital transformation into operations aims to enhance efficiency and customer engagement. These factors are anticipated to drive productivity gains and cost management improvements, which could lead to higher net margins and profitability.

Bank Mandiri (Persero) Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bank Mandiri (Persero)'s revenue will grow by 11.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 40.9% today to 34.3% in 3 years time.
• Analysts expect earnings to reach IDR 65888.9 billion (and earnings per share of IDR 681.55) by about September 2028, up from IDR 56277.8 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting IDR74488.0 billion in earnings, and the most bearish expecting IDR53829.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.1x on those 2028 earnings, up from 7.7x today. This future PE is lower than the current PE for the ID Banks industry at 17.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.43%, as per the Simply Wall St company report.

Bank Mandiri (Persero) Future Earnings Per Share Growth

Risks

• Tight liquidity conditions and increased deposit competition have led to a rise in funding costs, which, if sustained, could pressure net interest margins and profitability.
  
• Despite strong loan growth, net interest income growth has been hampered by higher funding costs, indicating a potential risk to revenue if funding conditions do not improve.
  
• The emphasis on maintaining a high loan-to-deposit ratio could challenge the bank's liquidity management, potentially impacting long-term revenue and balance sheet health if not managed carefully.
  
• There is a risk that non-interest income targets, particularly from cash recoveries, may not be met due to unfavorable macroeconomic conditions, which could negatively affect overall revenue growth.
  
• Cost of credit is expected to normalize, potentially rising from provisioning reversals. This could offset improvements in asset quality and ultimately affect net margins.

Valuation

• The analysts have a consensus price target of IDR6161.19 for Bank Mandiri (Persero) based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of IDR7800.0, and the most bearish reporting a price target of just IDR3600.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be IDR191862.7 billion, earnings will come to IDR65888.9 billion, and it would be trading on a PE ratio of 13.1x, assuming you use a discount rate of 14.4%.
• Given the current share price of IDR4620.0, the analyst price target of IDR6161.19 is 25.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.